Scope of Damages & Cost of Repairs Case Study

Case Description

A newly constructed, fully occupied apartment building that mainly catered to students at a nearby university in Downtown Detroit sustained substantial damage after a sprinkler line in the attic froze and broke. By the time the water stopped flowing, tens of thousands of gallons of water had poured into the building and the damage had spread throughout all five floors. The insured was certain that there was more damage to the structure than they could immediately identify, so they brought in an experienced contractor to uncover all of the necessary repairs.

The insurance company’s consultants prepared their own estimate of what it would cost to repair the damages. Based on their report, the insurance company valued the loss at under $2 million. However, their report failed to include a number of essential repairs that the insured’s contractor previously identified. The insured appealed to the insurance company to reconsider its position, since the proposed settlement amount did not come close to covering the costs of all of the needed repairs. However, the insurance company would not change their decision. Feeling that they were at an impasse, the insured demanded Appraisal.

Issue: Determining Cost and Scope of Repairs

This loss was large, with 80 furnished apartments suffering damage, and had several factors that made it incredibly complex. For one, the building had several modern features that the insurance company was unfamiliar with. Secondly, this was combined with the fact that the building had been built in a very tightly spaced urban setting which made access to the building very difficult for contractors. Additionally, water can cause damage that may not be identified for weeks, or even months, after the drying process is complete. Crucial to the outcome of the claim was to identify all of the obvious, as well as the hidden, damages to the apartment building.

In this case, the driving factors of the claim were not just the cost of repairs but also the scope of repairs. While the insurance company’s Appraiser would come to agree on some of these items before the case went to the Appraisal board, all of the remaining points of contention would need to be thoroughly substantiated by GMAI’s team. The major issues centered on the long term impact of the water on certain building materials and subsystems. Our investigation showed permanent damage to the subfloor, electrical systems, plumbing, and HVAC systems. However, the insurance company believed that once the mitigation was complete and the building was dry, there would be no additional damage to address besides cosmetic repairs, such as painting and floor coverings.

How Globe Midwest Adjusters International Helped

GMAI’s Appraisal team knew that the best way to obtain a fair award for the client was to provide the Appraisal Umpire with expert supporting documentation that clearly identified the full scope of the damages. This documentation also must clearly outline the repair methods and include strong bids from reputable, local companies that would give the true cost of completing the repairs.

A team of experts including a general contractor, architects, engineers, original equipment manufacturers, and other sub trades were assembled to work closely with GMAI’s Appraiser to ensure nothing was overlooked. A detailed summary was prepared identifying all damages throughout the apartment building and referenced numerous expert reports to support their position. Also prepared was a detailed estimate for the repairs, which was supported by sub-bids from original vendors and other expert providers. While GMAI was preparing our estimate, the insurance company also assembled their own team of experts that were trying to determine an estimate that supported the insurance company’s original position.

Our first step was to select a competent and fair Umpire that would understand the complexities of the case. From GMAI’s years of experience in Appraisal, we have worked with a number of umpires on a variety of different types of claims. Given the nature of this claim, we prepared a short list of people we have worked with in the past that we believed had the experience needed to serve as Umpire for this Appraisal. We specifically wanted someone who had a strong reputation for fairness, so that the insurance company would agree on one of our selections. Once we had an Umpire in place, we knew that the best way to support our position would be to provide substantial back up from reputable experts.

The key to success was being able to break down the complexity of the damage into a readable report with details supported by expert opinions. After providing this report to the Appraisal panel, these experts were brought in to address the panel and answer any questions directly. Having our experts present during Appraisal helped to solidify the insured’s position on the extent of the damages.

Outcome

This complex appraisal required both technical and tactical proficiency on the part of GMAI’s Appraisal team. Though the insurance company provided their own set of experts to attempt to refute the scope of the loss, GMAI was better able to demonstrate the full scope and cost of the damages to the panel. The insurance carrier’s original settlement offer was less than $2 million and the final award was in excess of $5 million, for an increase of over $3 million. These results were only achievable through the hundreds of hours the GMAI team put into identifying the damages, meetings with experts, preparing reports and attending hearings. Hard work, knowledge and, most of all, experience made the difference in the outcome of this Appraisal.